$$Increasing financial leverage increases both the cost of debt $($rdebt$)$ and the cost of equity $($requity$).$ So the overall cost of capital cannot stay constant.$$ This problem is designed to show that the speaker is confused. Buggins Inc. is financed equally by debt and equity, each with a market value of $$1\mathrm{.}6$ million. The cost of debt is $5\mathrm{.}6\%,$ and the cost of equity is $10\mathrm{.}6\%.$ The company now makes a further $$400,000$ issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to $6\mathrm{.}1\%$ and the cost of equity to rise to $14\mathrm{.}43\%.$ Assume the firm pays no taxes."Increasing financial leverage increases both the cost of debt $(r_{\text{d}\text{e}\text{b}\text{t}})$ and the cost of equity $(r_{\text{e}\text{q}\text{u}\text{i}\text{t}\text{y}}).$ So the overall cost of capital

cannot stay constant." This problem is designed to show that the speaker is confused. Buggins Inc. is financed equally by debt and

equity, each with a market value of $$1\mathrm{.}6$ million. The cost of debt is $5\mathrm{.}6\%,$ and the cost of equity is $10\mathrm{.}6\%.$ The company now makes a

further $$400,000$ issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to $6\mathrm{.}1\%$ and the cost of

equity to rise to $14\mathrm{.}43\%.$ Assume the firm pays no taxes.

a$.$ How much debt does the company now have?

b$.$ How much equity does it now have?

c$.$ What is the overall cost of capital? $($Do not round intermediate calculations. Enter your answer as a percent rounded to $1$ decimal

place.$)$

d$.$ What is the percentage increase in earnings per share after the refinancing? $($Do not round intermediate calculations. Enter your

answer as a percent rounded to $2$ decimal places.$)$

e$.$ What is the new price$-$earnings multiple? $($Hint: Has anything happened to the stock price?$)($Round your answers to $2$ decimal

place.$)$

Please calculat D$,$E only